Mail Stop 0510
August 5, 2004
via U.S. mail and facsimile
Maarten Hemsley
Chief Financial Officer
2751 Centerville Road, Suite 3131
Wilmington, Delaware 19803
RE: Sterling Construction Company, Inc.
Form 10- K for the fiscal year ended December 31, 2004
Filed March 29, 2005
File No. 1-31993
Dear Mr. Hemsley:
We have reviewed your filings and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and do not intend to expand our review to
other
portions of your documents. Where indicated, we think you should
amend your filing and revise your disclosures in future filings in
response to these comments. If you disagree, we will consider
your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the year ended December 31, 2004
Management`s Discussion and Analysis, page 10
Cash Flows, page 15
1. When preparing the discussion and analysis of operating cash
flows
please address material changes in the underlying drivers rather
than
merely describe items identified on the face of the statement of
cash
flows. Specifically, we note you identify several increases and
decreases in particular balance sheet accounts, which is
information
that is readily obtainable by the reader, however, you do not
provide
an analysis of these changes or the positive or negative impact on
future cash flows. Refer to SEC Release 33-8350 for guidance.
2. Address why cost and estimated earnings in excess of billings
increased 359% from 2003 to 2004 and why billings in excess of
cost
and estimated earnings decreased 54% from 2003 to 2004.
Contractual Obligations, page 11
3. Include interest payments and firm purchase obligations as part
of
your tabular disclosure. See Item 303 (a) (5) of Regulation S-K
and
footnote 46 to Release 33-8350 "Interpretation: Commission
Guidance
Regarding Management`s Discussion and Analysis of Financial
Condition
and Results of Operations.
Results of Operations, pages 16 -18
4. We note you have presented the non-GAAP measure, EBITDA.
Revise
to provide all the disclosures required by Item 10(e) of
Regulation
S-K and Question 8 to our Frequently Asked Questions Regarding the
Use of Non-GAAP Financial Measures. Address this comment as it
relates to your Form 8-K dated May 12, 2005 announcing your first
quarter earnings.
5. Provide a comprehensive discussion of your interest expense and
income taxes as these amounts have materially changed from period
to
period and have had a material impact on your income before income
taxes and net income for each period presented.
Note 4 - Investment in Affiliated Company ("Sterling
Transaction"),
page 33
6. We note that as part of the Sterling Transaction, you granted
the
Selling Shareholders a "Put" option for the remaining 19.9% of SHH
stock owned by them, pursuant to which they had the right to sell
the
remaining SHH shares to the Company at a date of their choosing
between July 2004 and July 2005 at a minimum purchase price of
$105
per SHH share. We also note that effective July 19, 2004, the
Selling Shareholders exercised their put. Expand your disclosures
to
provide the following additional information.
* Clarify how you determined the appropriate date at which to
value
your common stock issued in connection with the exercise of the
Put.
Refer to EITF 99-12. In this regard, clarify what you mean by "at
an
agreed value of $4.00 per share".
* You indicate that the final settlement of the Put transaction
resulted in an increase of approximately $5.1 million to the
Company`s reported amount of goodwill related to SHH. Clarify why
you had no adjustments to the fair value of the underlying assets
and
liabilities of SHH to the extent of the additional ownership
acquired
(20%) separate from goodwill in accordance with SFAS141. Disclose
your purchase price allocation to help clarify your accounting.
* Clarify how the fair value of the Put was determined as of March
31, 2004 and June 31, 2004. It is unclear to us, given the
likelihood the Put would be exercised in 2004, why there was not
an
increase in fair value prior to the July 19, 2004 exercise date.
Provide us with the authoritative literature you relied on to
account
for this transaction.
Note 5 - Line of Credit and Long-Term Obligations - Subordinated
Zero
Coupon Notes, page 36
7. Disclose the amount of interest forgiven on your subordinated
zero
coupon notes and where such forgiveness is reflected within your
financial statements. Also clarify why the accretion of the
discount
on these notes is not reflected as an adjustment to reconcile
income
from operations to net cash provided by operating activities
within
your Consolidated Statements of Cash Flows for the periods the
zero
coupon notes were outstanding.
Note 6 - Financial Instruments, page 39
8. Clarify what you mean by the statement, "The Company`s other
debt
is subordinate to the SHH Revolver, thus the carrying value of 12%
approximates its fair value." Also identify the other debt in
which
you are referring to.
Note 15 - Self- Insurance, page 46
9. We assume your policy to accrue the estimated liability for
employee health claims includes an estimate for incurred but not
reported claims. Clarify your policy in future filings or tell us
how your policy is appropriate.
Note 15 - Litigation, page 47
10. We note that you have assessed the materiality of the Ames
preference claim with reference to the overall financial condition
of
the Company. Expand your assessment of materiality with reference
to
your results of operations and liquidity.
Item 9(A) - Controls and Procedures, page 50
11. We note your statement that the chief executive officer and
chief
financial officer have concluded that the company`s disclosure
controls and procedures are effective "except as discussed below."
Given the exception noted, it remains unclear whether your chief
executive officer and chief financial officer have concluded that
your disclosure controls and procedures are effective. Please
revise
your disclosure to state, in clear and unqualified language, the
conclusions reached by your chief executive officer and your chief
financial officer on the effectiveness of your disclosure controls
and procedures.
For example, if true, you can state that your disclosure controls
and
procedures are effective including consideration of the identified
matters, so long as you provide appropriate disclosure explaining
how
the disclosure controls and procedures were determined to be
effective in light of the identified matters. Or, if true, you
can
state that given the identified matters, your disclosure controls
and
procedures are not effective. You should not, however, state the
conclusion in your current disclosure, which appears to state that
your disclosure controls and procedures are effective except to
the
extent they are not effective.
12. Please address the above comment as it relates to your Form
10-Q
for the quarter ended March 31, 2005.
* * * *
As appropriate, please amend your December 31, 2004 Form 10-
K
and March 31, 2005 Form 10-Q and respond to these comments within
10
business days or tell us when you will provide us with a response.
You may wish to provide us with marked copies of the amendment to
expedite our review. Please furnish a letter that keys your
responses to our comments and provides any requested supplemental
information. Detailed response letters greatly facilitate our
review. Please file your response letter on EDGAR. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require.
Since the company and its management are in possession of all
facts
relating to a company`s disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please provide,
in
writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in their filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Tracey McKoy, Staff Accountant, at (202) 551-
3772 or, in her absence, Jeanne Baker at (202) 551-3691, or me at
(202) 551-3255 if you have questions regarding comments on the
financial statements and related matters.
Sincerely,
Nili Shah
Branch Chief
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Mr. Hemsley
Sterling Construction Company, Inc.
August 5, 2005
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0510
DIVISION OF
CORPORATION FINANCE